• 1QFY6/24 results were above expectations with strong performance from utilities and cement.

• Key win for a MRT 3 package and participation in HSR, together with its synergistic cement business, will see YTL morph into a large cap infra proxy.

• Reiterate Add and TP of RM1.91 (20% discount to SOP).

1QFY6/24 Results Above Expectations

• YTL posted a 1QFY6/24 core net profit of RM576m (+12% qoq and >100% yoy). While we expect the subsequent quarters to be weaker, this was still 43% of our FY6/24F net profit and above our expectations. 1QFY6/24 revenue rose 16% yoy to RM7.5bn, led by robust growth for all divisions apart from construction.

• In addition to utilities whose 1QFY6/24 pretax profit jumped 300% yoy to RM931m, the other key highlight from its results was the cement business which showed a 327% yoy increase in 1QFY6/24 pretax profit to RM163m.

• No dividend was declared but we expect a 6 sen for FY6/24F (vs. 4 sen for FY6/23). There is a possibility of higher dividends which we believe could come from higher dividends from the utilities and cement units, and injection of assets into its REITs (the most recent being the sale of Stripes Hotel in KL, owned by YTL, to YTL Hospitality REIT for RM138m).

• YTL appears to be reviving its share buyback programme as it is seeking approval for a renewal of its share buyback authority at the coming Fortieth Annual General Meeting on 5 Dec 23.

What Are the Next Key Catalysts?

• Based on our analysis, in terms of market capitalisation and liquidity, YTL will likely be included as a FBM KLCI constituent where the cut-off date was 20 Nov. This may give it more visibility among local and foreign fund managers and make it the only infrastructure-related stock in the FBM KLCI.

• YTL has twin engines of growth via its construction and cement arms. We believe YTL, together with MCement, represent a more direct large cap and liquid proxy to the Malaysian infrastructure space than Gamuda, which has successfully diversified out of Malaysia.

• We estimate YTL had an outstanding orderbook of c.RM1bn as at end-Sep 23. This is largely from its Gemas-JB double tracking project which has been granted an extension of time for completion to Apr 2025. It is the lowest bidder for the CMC302 package for MRT 3 worth RM11bn and, assuming it manages to bag this, its current orderbook will jump to RM12bn.

• An added bonus is the revival of the KL-Singapore high-speed rail (HSR) project, for which we think YTL is the frontrunner, given its legacy with the project in the past, having been awarded the PDP portion for the southern section in Apr 18 prior to the project’s cancellation in Dec 20, coupled with its prior experience and involvement in the GemasJB double tracking project.

Reiterate Add, TP of RM1.91

• YTL trades at a CY24F P/E of 12x and P/BV of 1.1x. From a P/BV perspective, this is still below its pre-2018 mean level of 1.3x P/BV, when net profits averaged more than RM1bn p.a. over FY12-17.

• Key downside risks are poorer earnings for its utilities business which is anchoring growth currently and delays in contract awards.

• Key rerating catalysts are award of large-scale infrastructure projects which will benefit its construction and cement divisions.

Source: CGS-CIMB Research - 23 Nov 2023